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  • AUD/USD has been struggling on the upside in the latter part of November despite a positive domestic economic backdrop while the currency trades as a proxy to what goes down in China town, and that is where risks are swelling up for the Aussie.  
  • AUD/USD is currently trading at 0.7214 having fallen from 0.7250. The low of the session, so far, has been 0.7213.  

AUD/USD has been on the back foot in recent sessions, sliding from an 18th Nov. high with a resurgence in the greenback as political developments mount up in favour of the US dollar. Specifically, China is the main issue for Aussie traders. Chinese growth is a concern, (for there being a lack of), and the subsequent drop in iron ore and copper prices are weighing. The CRB index has been breaking down also due to the collapse of oil, all  of which the Aussie trades as a proxy considering its close ties to commodities trading and the economy’s dependency of sales of products, especially to its biggest trading partner, China.  

China’s economy has been expected to hit 6.6 per cent this year but slow to 6.3 per cent in 2019 while the country struggles with challenges relating to trade and structural reform, economists from Beijing’s Renmin University have said in a report.   This in line with the median forecast in a poll of 73 economists by Reuters last month, with China under increasing pressure from the trade war with the United States.

Crunch time for the Sino/US trade discord

With that in mind, it is crunch time for the Sino/US trade discord.  Trump and Xi are slated to meet at a tabletop and face to face meeting at the end of the week in  Buenos Aires during the G20 summit that got underway  on Monday. They will seek to lay out a framework for negotiations concerning trade – (The two countries have announced tit-for-tat tariffs on billions of dollars’ worth of goods from one another as the White House seeks to reduce the U.S. trade deficit with China and change how foreign companies are treated by Beijing).

Observers are hoping for some sort of temporary truce which will be very helpful to market participants and investors considering the current volatile environment and a sinking ship when it comes to global equities – (US indexes are now more than 10% down from their all-time highs which puts them in corrective territory).  

Trump administration looks very hawkish ahead of Xi summit

However, the Trump administration looks very hawkish leading into the summit, which may mean that neither party will give, and the greenback, for that matter, is picking up the demand as investors struggle to find an alternative leading into the meeting, which is pressuring the Aussie.  The DXY is now trading way above the 61.8% Fibo of the mid-Nov decline to recent lows at 96.04 – The 61.8% Fibo level is 97.06 and a line in the sand. In today’s price action, the DXY has pierced the 78.6% Fibo by a few pips to 97.37.  

Eyes on Federal Reserve’s Powell

Meanwhile, Federal Reserve’s Powell will be speaking on the economy tomorrow as he makes an appearance at the Economic Club of New York. Observers will be listening intently to hear if he bows to the recently less hawkish sentiment surrounding the Fed’s path of tightening following such critics as including President Donald Trump, who has been calling for the Fed to slow its pace of rate hikes. The US president, among others, has been concerned about how they may jeopardise the rate at which the US and world economy can continue to grow.

IMM Net Speculators’ Positioning as at November 20, 2018

“AUD shorts edged a little lower but remained essentially consolidative. Domestic data have been supportive, but concerns over Chinese growth and the drop in iron ore price could weigh,” analysts at Rabobank explained.  

AUD/USD levels  

Should there be a sentiment of a truce between Washington and Beijing, AUD/USD would likely vault the 0.73 handle with ease. First, the pair needs to cross the double top highs around 0.7275/80, (23.6% fibo level). 0.7338 was the 11-week high the guards a run towards the 200-D SMA at 0.7431 and confluence of the 38.2% Fibo of the 2018 highs to recent lows. However, at this juncture, the chips are stacked on black, for negative with the break of the 10-D SMA located at 0.7216 which has opened the floodgates for a run to 0.7164 recent lows that are guarding 0.7085 10th Sep lows. 0.7020 are the 2018 lows.